Biz & IT —

Is American economic growth over? A TED debate on progress

Is it progress if it leaves millions of people behind?

LONG BEACH, CA—“Could it be that the best years of American economic growth are behind us?” asked Robert J. Gordon, a professor of social sciences at Northwestern University, during a session of this week's TED2013 Conference. The session, called "Progress Enigma," asked speakers to tackle the concept of progress in a slowing American economy. Gordon's question is a scary one, made more terrifying by the last few years, when growth has been negative in some sectors. In his talk today, Gordon named four “headwinds” that confront the nation—demographics, education, debt, and inequality—which point to an ebbing American economy. Combined, these four factors cut growth in half, and innovation is needed to offset this trend. But that innovation is not likely to materialize, said Gordon. If we have less innovation over the next 50 years, there will be even less growth.

From 1891 to 2007, American economic growth was 2.0 percent per year. Now that it's slowing, we can no longer expect generational improvements in living, he argued. What's at the root of this slowdown? One factor is the very significant drop of young men in the labor force. Some of this is caused by technological improvements, such as factory robots that displace workers. Birth rates are down, too. We have too many old people who are retiring and not enough young people entering the labor market, Gordon said.

Education costs are also a massive impediment to growth, Gordon told the audience. College completion rates are 15 percent lower in the US than in Canada, and fewer people can afford to go. At the same time, personal and government debt are stifling American economic growth. When there is no growth, this debt becomes a massive burden. Finally, inequality, the fourth headwind, compounds these problems: growth in the lower income brackets is practically non-existent. Right now we see only 0.8 percent growth for the bottom 99 percent.

Robert J. Gordon.

Gordon then turned to history to explain the origins of our expectations of economic growth. The past American century was a phenomenal period of increasing wealth, and there is simply no guarantee that it should continue as such, he said. Electricity has been central to our American century, Gordon noted. Suddenly vertical cities were possible, and urban populations went from 25 percent of the total population to 75 percent in only a few decades. And electricity had far-reaching effects: women’s liberation was helped in part by the efficiencies made possible by electricity (refrigeration meant not needing to shop every day, laundry could be done much more quickly, etc.). Women also used to be primarily responsible for carrying water in to the home, but pumps and plumbing changed this.

On a more general level, the light bulb made us all more productive and more intelligent—we could read and work at night! The combustion engine also unleashed massive change. Suddenly one-third of agricultural land could be used for population growth rather than feeding horses. “The problem we face is that all of these great inventions—we have to match them in the future. My prediction is that we are not going to match them,” Gordon said.

This ultimately means that the 2.0 percent growth we’ve enjoyed to date is more likely to look like 0.2 percent growth in the future. The only way to push past it, Gordon concluded, would be to focus on addressing these headwinds.

The present is just a bump in the road

But Erik Brynjolfsson, a professor at the MIT Sloan School of Management and the director of the MIT Center for Digital Business, took the stage next and stated plainly, “Growth is not dead.”

Electricity, he said, is a “general purpose technology” that creates economic growth by driving complementary technologies, and technology alone is not enough. Rather, generation after generation has to reinvent their productivity in light of these new general purpose technologies. We see this in the generational gaps of progress between the advent of a new technology and the productivity it brings.

“Today, productivity is at an all time high,” he noted. Worldwide incomes are growing faster than ever in history, and that’s not even the whole picture. Many of the gains we are making are hard to measure. Minds, brains, and knowledge are huge benefactors of recent progress, but it's difficult, if not impossible, to measure that. Then there’s the explosion of free services that empower us. Zero price means zero weight in GPD stats. So how do we factor in the goods and services brought by, for example, the Internet?

Brynjolfsson argued that the "new machine age" is digital, replicated perfectly at zero cost, almost instantaneously—abundance has arrived. The new age is also exponential. “Computers get better, faster, than everything, ever,” he said.

The new machine age is combinatorial in that ideas do not get used up but rather create building blocks for new innovations. “The most important invention is machine learning,” Brynjolfsson told the crowd. IBM’s Watson recently showed this. It started as a weak system, but it improved faster than any human could. It will soon apply to legal, medical, and law enforcement jobs. “The full implications of the new machine age will take a century to play out,” he said, and it’s hard not to see those implications powering growth.

But problems lie ahead, Brynjolfsson conceded. Productivity is growing, but productivity is separating from employment, he said. Wealth is separating from work.

“Technology is racing ahead but leaving more and more people behind,” he noted. He pointed to tax preparation specialists as a quick example. Seventeen percent of them have lost jobs in recent years thanks to $40 programs like TurboTax, which produces wealth for fewer people.

We must try to find shared prosperity.

Brynjolfsson believes that the new machine age can be dated to the day when Gary Kasparov lost to IBM’s Deep Blue. But today, Kasperov showed that teams of people working with computers can beat the computers alone. Brynjolfsson's solution? We have to find the answer in teamwork.

Throughout the two talks, progress would sometimes be defined as GDP growth, sometimes as a measure of standards of living, and at other times the creation of new technologies. In the end, as is so often the case with TED debates, there was no consensus on the big picture. But both speakers agreed on one point: the labor force is being left behind, and we must work to solve the educational and population problems that confront the United States.

Ken Fisher
Ken is the founder & Editor-in-Chief of Ars Technica. A veteran of the IT industry and a scholar of antiquity, Ken studies the emergence of intellectual property regimes and their effects on culture and innovation. Emailken@arstechnica.com//Twitter@kenfisher

107 Reader Comments

According to the DJIA we've had remarkable growth over the last 5 years and we're back up to where we were before the recent crash.

...it just happens that "all things" outside of that are stagnating or actually contracting. :\

Quote:

We must try to find shared prosperity.

Difficult to realize this in our modern (1980s and forward) hypercapitalist model. A few decades prior to the 21st century, back when there was real wage growth and C-level pay wasn't 300x worker pay, we had much greater chances of a rising tide lifting all boats. Now, not so much. That isn't to say it's impossible, or even improbable, but that the skies are grey and darkening and it will take new ideas and new brilliance to get us out of this muck.

" We have too many old people who are retiring and not enough young people entering the labor market, Gordon said."

I'm very confused, I thought we had the opposite problem. I thought with the current economic conditions, less people are retiring. As well you would think that high unemployment means that plenty of people are in the labor market, but there is no one hiring.

So no one stopped the whole discussion to point out the potential mis-framing, the presumption that "growth" is necessary or substantially benefits anyone outside the plutocracy? I wouldn't call that a given at all.

" We have too many old people who are retiring and not enough young people entering the labor market, Gordon said."

I'm very confused, I thought we had the opposite problem. I thought with the current economic conditions, less people are retiring. As well you would think that high unemployment means that plenty of people are in the labor market, but there is no one hiring.

He's speaking in the long term. The birthrate is low, leading to smaller and smaller populations of younger people. Actually has been low for a while, but we're just now starting to feel the kick as the baby boomers start leaving the workforce.

Economic growth which is dependent on exponential population growth is becoming a thing of the past. We just don't know what to replace it with. Yet.

I rather think that we have a crisis of money dictating politics. This is crisis of democracy. Our taxes are historically low, yet we complain endlessly about debt and spending. Our representatives spend three quarters of their time collecting money for the next election. Those who give expect return, and this legalized bribery halts progress. Our traditional media, which is supposed to be a watchdog, is weak because hard questions mean no access. So we get Fox News and CNN (and others) spreading propaganda. It won't change until we get big money out of elections.

A constitutional amendment to define money as property (and not speech) and people as humans (sorry to corporations) would be a great start.

" We have too many old people who are retiring and not enough young people entering the labor market, Gordon said."

I'm very confused, I thought we had the opposite problem. I thought with the current economic conditions, less people are retiring. As well you would think that high unemployment means that plenty of people are in the labor market, but there is no one hiring.

Yep, this is one of the dumber things Gordon said. Along with trying to blame the national debt at a time when borrowing costs and historically low and unemployment and underemployment is the real problem. He obviously knows very little about economics and the current state of the economy, he simply parrots the conventional "wisdom" of the elites.

A huge part of the problem, which neither of these guys seem to be capable of understanding or acknowledging, is that income gains for US workers have not kept up with productivity gains. The income gini for the US has been growing disturbingly fast since the tax changes of the early 1980's. The wealth gini looks even worse. One persons spending is anothers income, how many years of slowing or stalled income gains does it take before economic growth stalls? In some sectors artificial monopolies granted by IP law create even more wealth concentration and a further drag on growth and innovation. Trying to place most of the blame on tech while ignoring these other factors is worse than useless.

Basic food, shelter and healthcare should be universal rights. I'd be willing to sacrifice some inconsequential amount of GDP growth for a proper Keynesian social-democracy. If it means we create fewer billionaires, fine by me.

Since we're talking about long periods of time I think there is more upside in productivity than we can predict.

If our economies become ever more virtual then money will be made by man-machine interfaces we only have hints of today. To go even further, perhaps we'll be able to rent out some brain capacity while we sleep. Or reduce sleep duration. Just because electricity is behind us doesn't mean something equally wonderful is not ahead of us.

Zero price means zero weight in GPD stats. So how do we factor in the goods and services brought by, for example, the Internet?

How is this guy the director of anything, much less digital business? He is ignoring one of the most basic tenets of economics. "There is no such thing as a free lunch". Free services are accounted for by the ad revenue they generate, which is factored into GDP. The costs of developing those services is also factored into GDP.

Sure, free services can have an impact on the micro scale, but GDP is a measure of the macro level.

Without defining exactly what is meant by growth there is no hope of any kind of useful conversation.

Consider just one example: If our population goes down, its very likely, all things being equal, that our GDP will go down. But this does not mean that we will per se be worse off. Quite the contrary, we would have less people to divide our existing resources amongst. So in that case its fair to say that our overall well being is increasing even as our GDP is falling.

Its been a while since i read tom murphy, but as i recall, he does the same thing im talking about above, speaking of 'growth' in ill defined terms. Again, growth of our overall well being? No, i dont want to see that slow down. Growth of our knowlege? Again, no, id rather that continue to grow? Growth of our our fossil fuel usage? I would like to see that go down. But again, all of those things are components of the overall economic picture.

Zero price means zero weight in GPD stats. So how do we factor in the goods and services brought by, for example, the Internet?

How is this guy the director of anything, much less digital business? He is ignoring one of the most basic tenets of economics. "There is no such thing as a free lunch". Free services are accounted for by the ad revenue they generate, which is factored into GDP. The costs of developing those services is also factored into GDP.

Sure, free services can have an impact on the micro scale, but GDP is a measure of the macro level.

Zero price does not mean zero utility. Consider this: A book which costs $1000 dollars generates $1000 dollars worth of GDP each time it is sold, but that same book sold at $10 obviously only generates $10 worth of GDP, but they both have the same utility. The book does not become less valuable just because its price goes down, but it does count as less GDP. GDP is a very crude metric that only really represents spending, not value.

I imagine growth rates would stop being anemic once the socialist party loses power, and then we'll see growth in more than just government boondoggles like enterprise routers for one-room libraries.

Wha-ha-ha-at?? You think the USA has a *socialist* party in power??? Oh dear...

Excessive government debt drags down growth (read Rogoff and Reinhart), and the incumbent party spends like socialists (oh dear indeed), so I'll call them what they are.

Are you implying that the Republican party will save us, once again? The party that has consistently blown spending through the roof, mostly to enrich its cronies? Or perhaps you are of the Real(tm) Libertarian ilk? Or shall we just call you what you are...?

I imagine growth rates would stop being anemic once the socialist party loses power, and then we'll see growth in more than just government boondoggles like enterprise routers for one-room libraries.

Wha-ha-ha-at?? You think the USA has a *socialist* party in power??? Oh dear...

Excessive government debt drags down growth (read Rogoff and Reinhart), and the incumbent party spends like socialists (oh dear indeed), so I'll call them what they are.

Are you implying that the Republican party will save us, once again? The party that has consistently blown spending through the roof, mostly to enrich its cronies? Or perhaps you are of the Real(tm) Libertarian ilk? Or shall we just call you what you are...?

* bummer, Ars comments do not support html entities, must use (tm)

Just because the Republican party sucks doesn't mean your party sucks any less. (or is any less guilty of deficit spending)

I imagine growth rates would stop being anemic once the socialist party loses power, and then we'll see growth in more than just government boondoggles like enterprise routers for one-room libraries.

Wha-ha-ha-at?? You think the USA has a *socialist* party in power??? Oh dear...

Excessive government debt drags down growth (read Rogoff and Reinhart), and the incumbent party spends like socialists (oh dear indeed), so I'll call them what they are.

And the non-socialist government, of course, started two useless wars and decided to send the tab to the socialist government. They also let the housing market superheat until it exploded and left the pieces for the socialist government.

That accumulated debt is now making it impossible to do the only logical thing in a systemic recession, which is to borrow and pump money into the economy by investing in projects that give long-term gain (infrastructure, transport, education, fundamental R&D) - even when the USA's sovereign borrowing is almost at negative rates; investors paying the US to lend money to it, imagine that!

We've gone through several cycles of boom-and-bust in the last three decades where politics got in the middle of the regular workings of Keynesian intervention. Governments are always ready to stimulate the economy in a recession, but no political party will risk losing elections by putting the brakes on the economy during a boom (and repay the debt incurred in previous bust) - which is the flipside of Keynes.

But all this amounts to tactics. This TED conference was about long-term strategy.

If "value" is more and more decoupled from "work", and the gains in productivity are not distributed equally because the gains are created by less and less people, we're going to have a caste system in our hands. Or, worse, a segregation between the "haves" on the penthouses and the slums everywhere else. Yeah, time to see "Metropolis" again.

I imagine growth rates would stop being anemic once the socialist party loses power, and then we'll see growth in more than just government boondoggles like enterprise routers for one-room libraries.

Wha-ha-ha-at?? You think the USA has a *socialist* party in power??? Oh dear...

Excessive government debt drags down growth (read Rogoff and Reinhart), and the incumbent party spends like socialists (oh dear indeed), so I'll call them what they are.

Reinhart and Rogoff tried to draw causation from correlation without supporting their assertion. I'd say that with at least one of their examples, Japan in late 90's/early 00's, they got it backwards. The slow growth was a result of insufficient fiscal and monetary activism on the part of the government and central bank respectively.

We've been suffering from mild austerity under the incumbent party, so you're really talking nonsense there as well. The big spending was under the previous (Republican) administration with unfunded wars, tax cuts for the rich, unfunded expansion of Medicare, etc. I'm guessing you're an econ major of the Chicago school.

And the non-socialist government, of course, started two useless wars and decided to send the tab to the socialist government. They also let the housing market superheat until it exploded and left the pieces for the socialist government.

Those 2 wars were voted on and approved by your hallowed Democratic party, so I'm not sure where you get off shifting blame solely to the Republicans. I also really doubt you were describing the war in Afghanistan as useless back in 2001. The housing market's implosion traces back to bad policies from both parties, so again, attributing every bad thing in the country to the Republican party is a very disingenuous response.

*My* Democratic party? I don't live in the USA! But I live in a country where 10% of my fellow citizens vote every 4 years on a Communist Party (yes, bloody Marxist-Leninist Communist party) and if you call your current government "socialist" you need to be lectured in Comparative Political Ideology.

"Shared prosperity" is an oxymoron in this society. The greed momentum exhibited by our executives and Wall Street won't go away. The stock market is a reciprocal measure of "shared wealth". Slow growth is highly likely. We are a mature empire. Productivity by machines no longer means increased prosperity by all. Just the opposite.

A huge part of the problem, which neither of these guys seem to be capable of understanding or acknowledging, is that income gains for US workers have not kept up with productivity gains. The income gini for the US has been growing disturbingly fast since the tax changes of the early 1980's. The wealth gini looks even worse. One persons spending is anothers income, how many years of slowing or stalled income gains does it take before economic growth stalls? In some sectors artificial monopolies granted by IP law create even more wealth concentration and a further drag on growth and innovation. Trying to place most of the blame on tech while ignoring these other factors is worse than useless.

There's no reason to expect that productivity gains should necessarily result in income gains (at least not proportionately). Let's say I'm working away making widgets at a rate of 1 per hour and then some new technology comes along that lets me double my output so I'm now making 2 widgets per hour. If I'm being paid for my time, then nothing has really changed for me--a certain number of hours of work is still worth the same amount--it just happens to result in twice as many widgets. If I was content to trade my time for a certain hourly wage before, why would I suddenly not be happy with this arrangement if nothing had really changed from my perspective?

Now, the company has some decisions to make. Do they really need twice as many widgets? Perhaps they will fire half their workers to do the same thing more efficiently? Perhaps they will do something in-between? In any case, the labor costs of the widgets are now half of what they used to be. If the widget market is a monopoly, then the company might just keep the difference as extra profit, but in a more competitive market they will lower the price of widgets as a result. In any event, there's really no reason to expect wages to be increased. If anything, I expect wages might decrease since there are now fewer jobs for the same number of people.

If productivity gains tend to have a negative impact on wages, then what we actually need is to be inventing new jobs faster than efficiency gains remove them in order to see an increase in wages.

I think the biggest issue is that GDP just doesn't measure the sort of gains we've seen over the past decade+. GDP just measures how many dollars are changing hands, but it doesn't account for the qualitative differences between things that are worth a dollar today vs last year vs last decade. Going back to the widget example, if the company sold twice as many widgets for half the cost each, the net effect on GDP would be zero, but it's hard to argue that a society with twice as many widgets isn't at least a little better off.

This is best exemplified by the declining costs of electronic devices. Compare your cellphone today to the one you had 10 years ago (did you have one yet?) or the one you had 20 years ago (what cellphone?). The increase in functionality is amazing, and yet you probably paid about the same amount for a new cellphone no matter which year it was purchased (or got it for free in each case with a contract). Computers are the same way. Spending $1000 on a new computer today gets you way more than it would have 10 or 20 years ago, but that $1000 adds to the GDP in the same way in each case.

Ultimately, if we want to measure "progress" in societal terms, we really need to look past the money and find a way to measure the qualitative improvements we've experienced recently and are likely to continue to experience in the future. And we need to be inventing new jobs as fast as we can.

Things look fairly scary for the future. With the current state of the internet and international borders, it's possible for a single person or single company to be the 'best' at any one thing. As things become more global, the services and products will be controlled or provided by fewer and fewer people, which just increases inequality.

Ah non economists talking about economics. Would you listen to a biologist talk about physics? Of course not, yet somehow when it comes to economics people love listening to almost everyone BUT the experts on the subject.

Especially in the comments here "I have no idea how any of this really works, but since it affects me more obviously than other things I will have strong opinions on it and am willing to yell about them and vote based on them."

Humans are amazing. "Is growth in America over???" No, we don't have the governmental regulation problems of Italy or Greece or France, so no. We'll be fine again eventually, if we sort out our spending in the right way.

"Then why are we in a recession???" Because the rest of the world is too, and because we can't sort out our debt. Idiotic fiscal practices and governmental regulation by much of the world's governments has finally caught up to the present day, and we aren't doing what it takes to fix any of it.

"But you can't know that, I read headlines contradicting you!" Yes, because they're headlines, they get press for excitement. Just like the Republican's get press for touting dubious economic theories of a single book written by a single economist with little credibility. And because, see above.

"But but but..." No, economics works, we have a good idea of how it works. We know capitalism works, because it's worked in China, and the US, and Germany, and Chile, and everywhere it's actually been tried properly. Yes, there are legitimate arguments between credible economists as to what the right solution is for various problems. No, it's not an exacting science like pure mathematics or physics. But it is a lot more provable than many suspect.

So why do we have all these problems? Because no one listens. Don't run a deficit if it can be helped! Simple, but few governments on earth follow this. When an economic disaster hits, increase government spending to try and help counter shortfalls in private spending! Hey look, it worked in America, which actually entered a recovery recently, far quicker than Europe, which has contracted government spending during a recession; and hey it's not working, just like economists have predicted! Too bad markets wouldn't let Europe increase spending, but I digress on that point.

Still it's kind of amazing how badly we manage to run things. We don't allow politicians to argue about how to build a car, people with no engineering skills don't have incredibly strong opinions on how cars should be built, they don't force manufacturers to build their cars in stupid and unsafe ways because they heard some quack on TV espouse that "this is the way it should be done!" No, we let engineers, who know what they're doing, build cars. Seems to work out great. b

But when it comes to economics we not only believe semi informed people like the article above, but those of us with even less knowledge than them then argue that they are wrong! I hope I'm not the only person that can see the problem here.